Revenue Interest Purchase and Sale Agreements in Pharma Royalty Financing

What Is a Revenue Interest Purchase and Sale Agreement?

A Revenue Interest Purchase and Sale Agreement is a contractual financing arrangement where a company sells an interest in its future revenue stream, often tied to a specific product or royalty, to an investor in return for immediate capital. The investor provides an upfront lump sum or tranched payments, and in exchange the company agrees to pay the investor a percentage of future sales or royalties over time.

Unlike a traditional loan, payments are contingent on actual revenue. If sales are robust, the investor receives more (up to an agreed cap). If sales are weak or the product fails, the investor's return is limited by that outcome. This structure shifts part of the product risk to the investor while giving the company cash today.

A RIPSA is designed to be non-dilutive for shareholders. The investor does not take equity ownership or control; instead, they receive a contractual right to a slice of revenue. Shareholders often welcome such deals as a way to finance growth without issuing new shares. For example, Verona Pharma explicitly described its 2024 RIPSA deal as non-dilutive funding to support the launch of its new drug.

RIPSAs are a type of royalty financing, part of a broader category of transactions where companies monetize future income streams for upfront cash. They come in various forms, sometimes called royalty monetizations (selling rights to existing royalty streams) and other times revenue interest financings (selling a portion of future product sales). The common thread is immediate cash for future payouts, structured flexibly to align with a drug's success.

Typical buyers of these interests are specialist funds or investors such as Royalty Pharma, Healthcare Royalty Partners, NovaQuest, Oaktree, and pension funds who are comfortable evaluating biotech product risks in exchange for potentially attractive returns.

How Do Revenue Interest Deals Work?

While each deal is unique, most Revenue Interest Purchase and Sale Agreements in pharma share common structural features.

Upfront Funding

The investor provides a significant cash payment or commitments for future payments to the company. This can range from tens of millions to hundreds of millions of dollars depending on the product's prospects and funding needs. Portions of the funding are often tied to milestones such as FDA approval or sales targets to mitigate risk. An investor might pay a portion at closing and commit more when the drug wins regulatory approval.

Revenue Participation

In return, the investor receives a contractually defined royalty or revenue interest. This is usually expressed as a percentage of future net sales of the drug or of royalties and license fees the company earns. It could be a flat percentage or a tiered rate (for example, a higher percentage on initial sales that declines as revenue grows).

Cap on Returns

These agreements almost always include a cap on the total return the investor can earn. Payments continue until the investor has received a certain multiple of their investment, often in the range of 1.5x to 3x of the principal. This cap protects the company from paying indefinitely and lets the investor target a fixed maximum return. 

Once a cap is hit or a certain total is repaid, the revenue stream typically reverts 100% to the company. 

Term and Buyout Options

Many RIPSAs include provisions for early redemption or buyout. The company might have the right to redeem the revenue interest by paying off the investor at a pre-agreed multiple, often lower if done early. Verona's deal allows it to redeem the obligation within the first three years at lower preset multiples, giving the company flexibility to refinance or eliminate the obligation early if the drug's launch goes well.

Some deals specify a time limit or step-up in return if payments are slower, effectively encouraging eventual payout. In one case, a biotech agreed to pay back $124 million if a drug's sales milestone was reached by 2030, or up to $178 million if it took longer, providing the investor a higher return for a slower timeline.

No Fixed Interest or Principal Schedules

Unlike traditional debt, payments are not a fixed coupon or principal amortization but rather a variable stream tied to revenue. This can be easier on the company's cash flow in early years. If sales are low, payments to the investor remain low. However, some agreements include minimum payment clauses or back-end guarantees to ensure the investor eventually reaches a certain threshold.

Use of Funds

Companies use RIPSA financing for many strategic purposes. Often it funds expensive drug development or launch costs without waiting for revenue to roll in. It can serve as a bridge to the next equity round or to profitability while preserving ownership and avoiding dilution. A biotech may use the proceeds to finance a Phase 3 trial or a commercial launch campaign that it otherwise could not afford.

In summary, a RIPSA aligns investor and company interests around a drug's success. The company gets upfront capital to develop or launch the drug, and the investor earns a return only if the drug generates revenue. The investor's upside is usually capped and they have no direct control over the business, which keeps the company's operations and equity in management's hands. On the other side, the company commits a portion of future income, which can limit future cash flows or make it harder to take additional debt on that asset. 

Case Study: Verona Pharma's $250 Million Ensifentrine Financing (2024)

One high-profile example is Verona Pharma, a biotech developing ensifentrine (a new inhaled therapy for COPD). In 2024, facing the costly launch of ensifentrine in the U.S., Verona secured a $650 million strategic financing package led by Oaktree Capital and OMERS. A key component of this package was a Revenue Interest Purchase and Sale Agreement.

Under the RIPSA, Verona receives up to $250 million in funding by selling a portion of its future ensifentrine-related revenues. This was structured as $100 million to be paid upon FDA approval of ensifentrine, with up to $150 million more available when certain sales milestones are met.

In return, the investors (Oaktree and OMERS) receive a single-digit percentage of ensifentrine revenues: specifically 6.5% of global net sales of ensifentrine (by Verona in the U.S.) and a 5% to 6.5% share of any licensing revenue Verona might receive from partners in other territories.

The investors' return is capped. Verona's agreement specifies that the total payments to Oaktree and OMERS cannot exceed 1.75x the amount funded. If the full $250 million is drawn, the investors will receive at most $437.5 million over the life of the deal. Verona also has the option to redeem (buy back) the revenue interest at even lower payout multiples if it does so within the first three years, giving the company flexibility to refinance or eliminate the obligation early if the drug's launch goes exceedingly well.

This deal illustrates the appeal of RIPSAs. It gave Verona a substantial amount of non-dilutive capital right when it needed cash for commercialization, effectively extending its cash runway beyond 2026. The company's CEO highlighted that this flexible funding aligned the investors with Verona's success and reduced financial pressure during the critical launch period. From the investors' perspective, they secured a claim on what could be a lucrative new drug, with protections (a capped 1.75x return and a priority share of revenue) to ensure a solid return if ensifentrine succeeds.

The Verona financing also included a traditional debt facility alongside the RIPSA. This combination of straight debt plus royalty-linked interest is increasingly common. The debt portion (in Verona's case, up to $400 million in term loans) provides fixed interest income to investors, while the RIPSA portion provides upside tied to product performance. Together they formed a comprehensive funding solution, replacing Verona's prior loan facility and fueling its growth plans. 

In March 2025, Verona announced an amended financing following Ohtuvayre's successful launch, repaying the entire RIPSA and refinancing its term loan on improved terms with the interest rate reduced from 11% to 9.7%.

Case Study: Dermavant's $160 Million Tapinarof Royalty Sale (2021)

Another example comes from Dermavant Sciences, a dermatology-focused biotech and part of Roivant Sciences. In 2021, Dermavant arranged a $200 million funding comprised of a $160 million revenue interest sale plus a $40 million credit facility. This deal was made as Dermavant prepared to launch tapinarof (brand name VTAMA) for psoriasis in the U.S. 

The $160 million RIPSA was provided by a consortium including Marathon Asset Management, NovaQuest Capital, and a third institutional investor. These firms essentially purchased a share of Dermavant's future tapinarof revenues. 

Dermavant's SEC filings reveal that the investors received a capped single-digit royalty on net sales of tapinarof in the U.S. for dermatology uses. The total payments to the investors were capped at $344 million (approximately 2.15x the $160 million funding). The funding was contingent on FDA approval, so the $160 million was only committed to be paid once tapinarof received FDA approval, which it did in May 2022.

Dermavant used the cash to pay one-time milestone obligations due upon approval and commercialization of tapinarof, and for other launch preparations. The royalty financing bridged a cash crunch: it enabled Dermavant to handle licensing milestone payments and push the product to market without issuing equity at what could have been a low valuation pre-launch.

Dermavant's arrangement is a classic royalty monetization in biotech: the company traded a slice of future product income for immediate capital to unlock the product's own potential. The cap of approximately $344 million ensured that once the investors roughly doubled their money, Dermavant would retain all further tapinarof revenues. This aligns incentives: the investors are motivated to see a successful launch (so they reach their cap), but the company preserves the long-term upside beyond that point.

Other Recent RIPSA Examples in Biotech

RIPSA-style deals have become common in pharma and biotech, used in diverse situations from early development to post-approval. Here are several notable examples that highlight how these agreements can be tailored. 

Nanobiotix and Healthcare Royalty (2025)

French biotech Nanobiotix secured up to $71 million in a royalty financing with Healthcare Royalty Partners to support its phase 3 cancer therapy. The deal provided $50 million upfront and $21 million later on, in exchange for a portion of Nanobiotix's royalties from a partnered drug with Johnson & Johnson.

The structure was unique: Nanobiotix will repay from a defined slice of royalties on the first $1 billion of sales plus portions of certain milestones. The payback is tiered: if sales hit the target by 2030, Nanobiotix will pay $124 million (approximately 2.4x return); if it takes longer, up to $178 million (reflecting the higher investor risk and longer duration). Even after that cap is reached, the investor gets a small trailing royalty for a limited time (capped at $14.9 million per year for 10 years).

This complex arrangement shows how deals can be custom-fitted, balancing urgency for funds, uncertainty of success, and sharing of long-term upside.

Myovant Sciences (2020)

Myovant (another Roivant company) obtained $100 million via a revenue interest financing from NovaQuest and Sumitomo, tied to future sales of its women's health drug. The investors' return was similarly capped (around 1.5x to 2x) and the funding was tranched based on regulatory approvals. This helped Myovant fund its clinical programs ahead of commercialization.

Other Notable Transactions

Numerous biotechs have pursued royalty financings for different needs. Minerva Neurosciences sold a portion of its royalty rights on a psychiatric drug for $155 million to Royalty Pharma. Phathom Pharmaceuticals raised $50 million in 2022 through a revenue interest agreement on its gastrointestinal drug, granting the investor a percentage of future revenue with a cap on total payments. Even large pharma companies occasionally monetize royalties on non-core assets to generate cash. The flexibility of these structures means they can be as small as a few million or as large as several hundred million dollars, tailored to the asset's profile.

Each deal is unique, but collectively these examples underscore how RIPSAs and royalty monetizations have become mainstream financing tools. Companies can unlock capital tied to the future success of their innovations, while investors (often specialized funds) gain exposure to biotech returns in a debt-like, collateralized fashion.

Regulatory and Legal Considerations

One advantage often cited for royalty financings is that they can be done with less regulatory complexity than issuing equity or bonds. Since a RIPSA is essentially a private contract for a share of revenue, it generally does not fall under public securities offering regulations. The company is not selling stock or publicly traded debt, so it avoids the need for SEC registration or state blue sky filings that a public offering would require. This saves time and cost, and deals can often be negotiated relatively quickly with institutional investors.

 That said, securities law can still be relevant. If a revenue interest were structured in a way that it is offered to multiple investors or the public, it might be deemed an investment contract (and thus a security). In practice, most pharma royalty deals are done as one-off transactions with a small number of qualified institutional buyers, fitting within private placement exemptions. Lawyers draft the agreements carefully so that the investor is regarded as purchasing an asset (the revenue interest) rather than a security.

 According to UpCounsel, depending on structure, a royalty financing may be considered a security in some jurisdictions, so legal review is important. By and large, RIPSAs are private commercial agreements enforced via contract law and are less regulated than equity financing.

Key Legal Considerations

Intellectual Property and Collateral: The revenue stream often derives from a product or IP. Agreements must clearly define the IP rights and what happens if the company fails to commercialize. Many deals involve a collateral assignment or security interest in the royalty stream. An independent collateral agent may be appointed to hold certain rights in trust for the investors. If the company were to default (for example, not making payments it owes from actual sales), the investors might have rights to step in or receive a termination payment. Ensuring the IP license or product sales rights cannot be transferred or encumbered without the investor's consent is usually a key covenant.

Covenants and Company Obligations: Although royalty financings are described as flexible (often with no fixed payments, no personal guarantees, and no restrictive covenants in simple cases), large transactions do impose operational covenants. Investors want to protect their chance of repayment. Typical provisions include: the company must use commercially reasonable efforts to develop and market the product, cannot abandon the project unreasonably, and cannot license or sell the product in a way that undermines the revenue interest without the investor's approval. There may be restrictions on additional debt secured by the same assets, or requirements to provide regular sales reports.

Verona Pharma disclosed that the terms of its RIPSA placed certain restrictions on its operations and financial flexibility, with breaches potentially putting the financing at risk. While there is often no fixed repayment schedule, the company is contractually obligated to take care of the asset (the drug) and keep the investor informed. 

Regulatory Milestone Conditions: Because drug development is high risk, many RIPSAs condition funding on regulatory events (such as FDA approvals). This protects investors from funding a product that might fail to get approved. It also raises the question of what happens if approval is delayed or denied. Usually the agreement allows the investor to walk away or terminate if a key approval is not achieved by a certain date. Companies must negotiate for some flexibility or partial funding in such events, but often the investor's obligation is explicitly tied to successful approval. This means the outcome of FDA reviews can directly impact financing, a feature unique to royalty deals in pharma.

In summary, from a regulatory standpoint RIPSAs are generally private, negotiated deals not requiring public issuance, but they do involve careful contracting around IP and performance. Companies and investors will each obtain legal opinions to ensure the agreement is enforceable and not inadvertently creating a security or violating any laws. Expert counsel is needed to navigate these complexities, especially for cross-border deals where withholding taxes or local law on royalty payments might also come into play.

Tax Implications

The tax treatment of revenue interest agreements can be complex, but several general points apply.

Company Perspective

Upfront Payment: The company typically does not want the lump-sum funding to be immediately taxable as income. If the transaction is treated as a debt financing, the cash received is not taxable upfront (similar to loan principal). If treated as an asset sale, there could potentially be a tax on sale proceeds. In practice, most pharma companies structure these deals so that for tax (and accounting) purposes they resemble debt or deferred income rather than a current sale. This allows taxation to be spread over time or deferred.

Payments to Investor: The ongoing payments the company makes, whether labeled as royalties or as interest, are generally considered business expenses. According to UpCounsel, payments under a royalty financing agreement are usually tax-deductible expenses for the borrower. If structured as a loan, the interest portion is deductible. If structured as royalty payments (a cost of goods sold or licensing expense), those are also deductible against revenue. This is a key benefit: unlike dividends (which are not deductible) or equity dilution (no tax effect but loss of ownership), royalty financing yields tax-deductible cash outflows. 

However, the exact treatment can vary with the deal's structure and local tax laws. Companies need to ensure they do not accidentally characterize the transaction in a way that could trigger withholding tax. For example, if the investor is overseas and the payments are considered royalties for tax purposes, the payments might be subject to royalty withholding tax. Deal structures are often crafted (sometimes involving offshore special purpose vehicles) to minimize such taxes. 

Investor Perspective

Investors want to clarify whether the cash flows are interest income, royalty income, or a return of principal, as each can have different tax profiles. Many dedicated royalty funds are structured in tax-efficient ways (some are set up as trusts or partnerships) to pass through or defer taxes. The location of intellectual property can also influence tax: if a royalty originates from U.S. sales versus ex-U.S. sales, different tax rules apply.

 Tax considerations sometimes influence how the deal is documented. Some agreements explicitly state that the parties intend to treat the transaction as a loan for U.S. tax purposes, which clarifies that the investor's returns are interest (avoiding withholding tax on royalties) and the company's payments are interest expense. In other cases, if it is a true sale of a royalty to a third party, the tax might be handled as a sale of an intangible asset.

The tax implications must be evaluated on a case-by-case basis. Companies generally favor structures that allow deductibility of payments and defer income recognition, while investors seek to avoid adverse tax on the income stream. Engaging tax advisors early is advisable, especially for cross-border royalty deals or novel structures.

Accounting Treatment

Accounting for a Revenue Interest Purchase and Sale Agreement can be one of the trickier aspects for a company. The central question accountants ask is: Is this transaction a debt obligation or a sale of an asset? 

U.S. GAAP (under ASC 470-10) provides guidance that a company receiving an upfront payment for future revenues must evaluate whether to book it as debt or deferred income. If the company has significant ongoing obligation or the investor's return is effectively guaranteed up to a cap, the arrangement often looks like a financing (debt). If the company truly transfers all risks and benefits of an income stream, it might qualify as a sale (with the upfront payment recorded as income or deferred revenue).

Factors Triggering Debt Classification

In practice, most biotech royalty financings end up being recorded as liabilities (debt) on the balance sheet, with the payments to the investor treated similarly to debt service. One company's SEC filing described its revenue interest agreement this way: the $50 million received was accounted for as long-term debt based on the terms of the RIFA because the risks and rewards to the investor are limited by the terms of the transaction. The company amortized the amounts using an effective interest rate, and as payments are made to the investor, the balance of the liability is being effectively repaid over the life of the agreement.

 The company recorded a "Liability related to sale of future revenues" on its books, and each period would recognize a portion of that as an interest expense based on projections of future payments.

 The telltale sign that triggers debt accounting is often the cap or minimum in the arrangement. If the company has to pay a certain maximum (cap) amount or ensure a minimum return, accountants see it as the company owing money (a liability), not truly selling an open-ended asset. In the Dermavant case, there was a fixed cap of $344 million to be paid. Similarly, another deal included provisions that if annual sales fell below a threshold, the company must make minimum payments or catch-up payments by certain dates. These features create an effective obligation akin to debt.

 The accounting outcome is to record the initial cash as a debt liability, and then each royalty payment is split into an implied interest expense and a reduction of principal (liability) using the interest method. The effective interest rate is determined by estimating the timing of payments. In one example, the company calculated an effective interest rate of approximately 16% on its royalty financing liability.

 If a company truly sells a royalty stream with no cap and no ongoing involvement (for instance, selling a passive royalty right to another party, and if the drug fails the buyer gets nothing with no recourse), it might qualify as a sale of an intangible asset. In that case, the accounting could be to derecognize that asset and recognize a gain or deferred revenue. However, pure examples of that in pharma are less common in company financials, because even when companies sell royalty rights, they often retain some obligations or buyback options that push it back into financing territory.

 For biotech executives and CFOs, the key takeaway is that RIPSAs can impact the balance sheet and income statement much like a loan. They will often increase recorded debt and require recognition of interest expense (which reduces earnings in the accounting sense, even though cash payments only occur when sales materialize). Analysts and investors typically understand this and may adjust their metrics to account for it. It is important to clearly disclose the nature of the arrangement in financial statements. Footnotes will describe it as a liability related to sale of future revenues or royalty financing obligation so that the economic substance (a borrowing secured by future sales) is transparent.

Accounting treatment under IFRS (for international companies) follows a similar principle of substance over form. Many IFRS reporters likewise record such transactions as financial liabilities with effective interest, unless the risks are largely transferred to the buyer.

 In summary, expect a RIPSA to be booked as debt in most cases. Companies should model the impact on leverage and interest expense, and communicate to stakeholders that while it is debt-like, it is only serviced out of the product's future revenue. This nuance is often worth explaining to investors: the obligation is extinguished by the product's success (and capped), unlike a traditional loan that must be paid regardless of performance.

Conclusion

Revenue Interest Purchase and Sale Agreements have emerged as useful tools for life sciences companies to fund innovation and growth. In a period when venture capital and IPO windows can be unpredictable, these royalty-based financings offer a proposition with benefits for both sides: non-dilutive capital for companies, and exposure to drug success for investors.

 By monetizing a piece of future revenue, a biotech can bring in needed cash to get a drug across the finish line, whether that means completing a clinical trial or launching a product, while sharing a defined slice of the eventual returns with its financing partners.

 The examples of Verona Pharma, Dermavant, Nanobiotix, and others highlight a common theme: strategic use of RIPSAs to bridge the gap between scientific promise and commercial reality. These agreements require careful crafting. Companies must weigh the cost (giving up a portion of future revenue and perhaps taking on a debt-like obligation) against the benefit of immediate funds that can increase the chances of success. For many, that trade-off makes sense, especially when the alternative might be diluting equity at a low valuation or stalling a project due to lack of funds.

 Finance professionals examining RIPSAs should pay close attention to the details: the percentage of revenue, the cap multiple, any minimum payment guarantees, and the rights the investor has. Biotech executives should also plan for the endgame. If the product is a strong success, can they refinance or buy out the royalty early? If the product struggles, what protections exist for both sides?

From a regulatory and governance standpoint, these deals can be executed relatively quickly, but they add a layer of complexity to the company's capital structure that boards and investors need to understand. On the tax and accounting front, anticipating the treatment will avoid surprises in financial reporting and tax obligations.

 In the coming years, royalty financing is likely to remain a part of biotech financing strategy, particularly for companies with mid-to-late-stage assets. The dedicated royalty funds and alternative lenders are well-capitalized and prepared to deploy money into promising therapies. For biotech firms, a RIPSA can be the factor that turns a scientific breakthrough into a marketed drug by providing the capital to reach the market. As with any financial tool, it should be used with appropriate consideration, structured with expert advice and with attention to the long-term implications for the company's financial health.

 Disclaimer: The author is not a lawyer, accountant, or financial adviser. This article is for informational purposes only and does not constitute investment, legal, or tax advice. Readers should consult qualified professionals before making financing decisions.